COVID-19: Opportunity for Energy Sector reforms

GOVERNANCE/ ECONOMY/ ENVIRONMENT

Topic: General Studies 2 & 3:

• Government policies and interventions for development in various sectors 
• Indian Economy and challenges with regard to resource mobilization

COVID-19: Opportunity for Energy Sector reforms

Context: The 9-minute event on April 5th was one PM asked to switch-off lights and light lamps to show respect to COVID-19 warriors. It was interesting for the extent of public participation and expert management of National Electricity grid

Pre-Covid, India’s power sector has been facing a mounting financial crisis which has made it more prominent in recent times caused by an expected slowdown.

Challenges in Energy Sector

• The trend of low power demand, now furthered in the post-Covid economy
• Idle, old, and inefficient coal plants.
  • Plant load factors of Coal plants for the 2019-20 period are at 56%, down from 78% a decade ago.
• High Industrial Power tariffs –one of the highest in world
• Heavily subsidised agricultural power tariffs leading to Cross-Subsidisation – High industrial power tariffs to lower the cost of agricultural power
• Financial health of the DISCOMs (Power Distribution Companies who purchase power from generators & distribute it consumers). 
  • They now owe over Rs 8.8 billion to generators. 
• Challenges with Renewable Energy (RE)
  • Difficulties of integrating it with National grid given its peak productions & falls.
  • Uncertainty with RE: Weather patterns change and forecasting is never 100% accurate. 
  • Electricity management of RE will be difficult given its fluctuating nature

Way Ahead

• A market-based, automatic mechanism for integration of infirm renewable power into the grid is non-negotiable.
• Use of Li-ion battery storage to manage power spikes associated with the 175GW of RE planned by 2022
• Restructuring of Coal Plants: Some of these old units could be restructured and shut down, based on their generation costs, remaining plant life & modernisation
• Improving Efficiency: Retrofit power units with flue gas desulphurisation (FGD) to improve the environmental efficiency of old power plants
• Lower industrial power tariffs to meet the competition. Industrial power in Vietnam is, for example, 40% cheaper than in India
• Adoption of DBT framework for providing subsidy to agricultural power consumers
• Utilize the Crisis: Now is an opportunity to bring in fresh Covid-influenced industrial investment from Korea and Japan, which are diversifying away from China.
• New Legislative Framework: Enactment of proposed Electricity Amendment Bill,2020 and adoption by States with suitable modifications

Conclusion

The proposed Electricity Amendment Bill, 2020, is an ambitious step in the right direction—with bold moves to 

• Institute cost-reflective tariffs, 
• Remove subsidies, and 
• Strengthen the sanctity of contracts through greater enforcement 
• Provision of payment security to generators

Connecting the dots:

• UDAY Scheme
• Paris Climate Goals and India’s commitment towards it